Regulators zero in on protecting elderly investors

Finra files cease-and-desist order against brokerage firm for sales to older customers

Apr 28, 2015 @ 1:27 pm

By Mark Schoeff Jr.

An aging population has investment advisers and brokers zeroing in on older clients to build their books of business, while regulators target the same group for investor protection.

On Monday, the Financial Industry Regulatory Authority Inc. filed a cease-and-desist order against Avenir Financial Group for sales of equity in the firm and promissory notes. Finra alleged that Avenir lied about the health of the firm and raised more than $730,000 over three years in sales mostly to elderly customers.

Finra also barred an Avenir registered representative, Cesar Rodriguez, for the personal use of $77,000 in investor funds.

The action came one week after Finra established the toll-free Finra Securities Helpline for Seniors, where elderly investors can turn during business hours for assistance from Finra staff regarding concerns about their portfolio or their broker.

As approximately 10,000 baby boomers turn 65 every day, protecting senior investors “remains an important priority of our organization,” said Susan Axelrod, Finra executive vice president for regulatory operations. “It's important for us to be out there. It's important for us to act swiftly. It's important for us to be innovative in how we help senior investors.”

In its eight days of existence, the senior help line has taken about 100 calls from people ranging in age from 40 to 99, Ms. Axelrod said. The line is a way to find a problem before it grows to the level of triggering a Finra case, which usually occurs after the damage is done.

“That's a more proactive approach to helping seniors, and that's why we're energized by the hotline,” Ms. Axelrod said.


In mid-April, the Securities and Exchange Commission and Finra released a report about the regulators' National Senior Investor Initiative , a project based on examinations of 44 broker-dealers focused on sales practices involving elderly clients.

The report stated that the chase for yield may be resulting in brokers putting senior clients into inappropriate nontraditional investments, such as variable annuities, nontraded real estate investment trusts, structured products and other alternative products.

“[SEC] and Finra staff are concerned that broker-dealers may be recommending unsuitable securities to senior investors or failing to adequately disclose the related risks,” the report stated.

The study is a harbinger of more regulatory activity related to elder clients, said Amy Lynch, president of FrontLine Compliance.

“There's going to be a few more cases coming out as a result of the study,” she said.

If Finra is investigating a firm and sees that the misuse of investment funds involves the elderly, as in the Avenir case, “that's going to be a red flag on top of a red flag,” Ms. Lynch said.

Avenir chief executive Michael Clements, who was named in the Finra complaint, declined to comment.

Firms should provide enhanced training for their registered representatives who work with elderly clients, Ms. Axelrod said, so that they can better handle situations of diminished mental capacity.


Brokers also should be cognizant of the dangers of seniors' chasing yield through alternative investments. They don't have as much time as other clients for them to pay off.

“It's important to understand how important the time horizon can be when evaluating investment decisions for senior investors,” Ms. Axelrod said.

Financial advisers should take particular care when working with elderly clients, according to Ms. Lynch.

“We are recommending that firms have strict protocols for due diligence and oversight of accounts for senior citizens,” she said.


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